Grasbergs Underground Mine To Bear Fruit In 2022

Thursday, 29 March 2018 02:29
David Dwiarto

State-owned mining holding firm PT Indonesia Asahan Aluminium (Inalum) expects hardly any earnings from the Papua-based Grasberg mine next year and projects its full benefits to come no sooner than 2022.

The state-owned business entity is set to acquire a controlling stake in gold and Copper mining firm PT Freeport Indonesia (PTFI), the operator of the underground mine, by April as part of the negotiations to extend the latters operating permit in the country beyond 2021 to 2041.

If all goes as expected, Inalum would see Grasberg reach its highest production rate this year, as that would be the last year of open-pit production at the site, Inalum president director Budi Gunadi Sadikin said.

"In 2018, Grasbergs open pit will be depleted, while the development of its underground mines will just start. Therefore, production, revenue and cash flow from Grasberg will be at a record low in 2019, before gradually surging to its normal level once again in 2022," he recently said.

PTFI aims to sell 544,000 metric tons of Copper and 2.4 million ounces of gold in 2018. Throughout last year, the local unit of United States-based mining giant Freeport-McMoRan (FCX) sold only 445,000 tons of copper, down 6.92 percent year-on-year (yoy), and 1.54 million ounces of gold, up 46.11 percent yoy.

The downward trend in PT-FIs Copper sales is attributable to temporary disrflptions in the operation at Grasberg, the worlds second-biggest Copper mine as well as top gold mine, in the first half of 2017, when its dispute with the government escalated.

Budi said Inalum would only sell leftover gold and Copper stocks from Grasberg in 2019, while commencing the transition into the Grasberg Block Cave (GBC) underground mine.

According to its schedule, the company would begin in 2025 with the development of another underground mine, Kucing Liar. It claims this mine has huge reserves that can last beyond 2041, when PTFIs extended operating permit is slated to expire.

"If we start digging in the Kucing Liar mine in 2025 and start production in 2030, there will be only around 10 years for PTFI to exploit its reserves. Hence, PTFI is still considering whether it has to invest in the mine now, because there wont be enough time for it to exploit its entire reserves," Budi explained.

Grasbergs total ore reserves amounted to 1,382 million tons at the end of last year. GBC account-ed for 69.7 percent of that figure, while another 26 percent derived from Kucing Liar, according to the international mining industry consultant Behre Dolbear.

In a report published on Feb. 13, Deutsche Bank estimated that Grasberg will require capital expenditure of around USS9.4 billion in the 2018-2041 period, S4.1 billion of which will be used to develop the GBC starting in 2019 and S3.4 billion will be spent on Kucing Liar starting in 2025.

Separately, PTFI spokesperson Riza Pratama said the company had invested $8 billion since 2004 to develop Grasbergs underground mine.

"If we obtain an operating permit extension, we will invest around $20 billion until 2041," he recently said.

Viriya P. Singgih/ THE JAKARTA POST/JAKARTA

Source :TheJakartaPost, March 26, 2018

Last Updated ( Thursday, 29 March 2018 02:34 )

Rio Tinto Interest Sales Win-Win Deal

Friday, 23 March 2018 11:25
David Dwiarto

Viriya P. Singgih

THE JAKARTA POST/JAKARTA - Indonesias attempt to detour to Rio Tinto from the formers course to acquire gold and copper miner PT Freeport Indonesia (PTFI) may become a win-win deal for all parties involved, particularly for production split at the Grasberg mine.

The government has been negotiating with American mining giant Freeport-McMoRan (FCX) to increase the stake of Indonesian entities in PTFI to 51 percent from 9.36 percent.

State-owned mining holding firm PT Indonesia Asahan Aluminium (Inalum) now leads a consortium of Indonesian investors that will take over PTFIs majority stake by April.

Under a joint venture deal between Rio Tinto, the worlds second-largest miner, and PTFI signed in 1995, the former will be entitled to 40 percent interest in the entire production of Gras-bergs Block A, where the latters proven and probable reserves as well as its whole mining operation are located.

The acquisition of FCXs 41.64 percent stake in PTFI will enable Indonesia to obtain merely 31 percent of the production, while FCX and Rio Tinto are set to get 29 percent and 40 percent, respectively and therefore, the country will still have no dominant control of the output in Grasberg, the worlds second-biggest copper mine.

RI to hold majority interest in PTFI by acquiring Rio Tintos share Move seen as amicable solution for all parties However, Indonesia will have a majority share of 51 percent of the production if it buys Rio Tintos 40 percent interest in Grasberg and convert it into PTFI shares with an equal percentage, and then acquire Indocopper, leaving the rest for FCX.

"The purchase of Rio Tintos participating interest is aimed at unifying the equity and economic interests [of PTFI and the Grasberg project, respectively,] to be 51 percent for Indonesia and 49 percent for FCX," Inalum head of corporate communication Rendi A. Witular said on Tuesday.

Energy and Mineral Resources Minister Ignasius Jonan said on Jan. 25 that Rio Tintos 40 percent interest would be converted into shares through a rights issue, resulting in the dilution of the stakes currently held by Inalum and Indocopper to around 5.5 percent each. Consequently, after the conversion of Rio Tintos interest into shares and the acquisition of Indocopper, Indonesia would control a 51 percent share in PTFI, Jonan said.

Earlier this month, PTFI executive vice president Tony Wenas acknowledged that Rio Tintos 40 percent interest could be converted into 40 percent shares in PTFI with the approval of its parent company, FCX. He also said there would be no problem in securing the deal in the near future even though Rio Tintos agreement with PTFI was supposed to become effective in 2022.

"Technically, we can arrange it so that we will be able to directly convert [Rio Tintos] interest into PTFIs shares," Tony said on March 7.

Inalum has hired Indonesias state-owned investment firm PT Danareksa and two American consultancy firms - Morgan Stanley and PricewaterhouseCoopers (PwC) - to calculate the value of Rio Tintos interest. The process has reportedly been complete, although the figure has not been publicly disclosed.

Germanys top lender, Deutsche Bank, said in a report published on Feb. 13 that an exit from Grasberg for above US$3.3 billion, with an implied discount rate of around 14 percent, would be a reasonable outcome for Rio Tinto.

The miner, which had operating assets totaling $1.14 billion for Grasberg as of last year, is projected to see its copper production more than double to 1.05 million tons per year in the 2023-2027 period from only 478,000 tons last year, according to thelender.

By the mid-2020s, as Gras-bergs underground mine ramps up, the huge mining site is expected to make up about 8 percent of Rio Tintos total earnings before interest, taxes, depreciation and amortization (EBITDA), in accordance with its 40 percent interest in the project.

However, Deutsche Bank also said considering Indonesias current mining rules, which demand government control of all mining assets, the best-case scenario for Rio Tinto would be to see its ownership in Grasberg dwindle to 20 percent from 40 percent at present.

Source :The Jakarta Post, March 21, 2018

Rio Tinto Interest Sales Win-Win Deal

Friday, 23 March 2018 11:25
David Dwiarto

Viriya P. Singgih

THE JAKARTA POST/JAKARTA - Indonesias attempt to detour to Rio Tinto from the formers course to acquire gold and copper miner PT Freeport Indonesia (PTFI) may become a win-win deal for all parties involved, particularly for production split at the Grasberg mine.

The government has been negotiating with American mining giant Freeport-McMoRan (FCX) to increase the stake of Indonesian entities in PTFI to 51 percent from 9.36 percent.

State-owned mining holding firm PT Indonesia Asahan Aluminium (Inalum) now leads a consortium of Indonesian investors that will take over PTFIs majority stake by April.

Under a joint venture deal between Rio Tinto, the worlds second-largest miner, and PTFI signed in 1995, the former will be entitled to 40 percent interest in the entire production of Gras-bergs Block A, where the latters proven and probable reserves as well as its whole mining operation are located.

The acquisition of FCXs 41.64 percent stake in PTFI will enable Indonesia to obtain merely 31 percent of the production, while FCX and Rio Tinto are set to get 29 percent and 40 percent, respectively and therefore, the country will still have no dominant control of the output in Grasberg, the worlds second-biggest copper mine.

RI to hold majority interest in PTFI by acquiring Rio Tintos share Move seen as amicable solution for all parties However, Indonesia will have a majority share of 51 percent of the production if it buys Rio Tintos 40 percent interest in Grasberg and convert it into PTFI shares with an equal percentage, and then acquire Indocopper, leaving the rest for FCX.

"The purchase of Rio Tintos participating interest is aimed at unifying the equity and economic interests [of PTFI and the Grasberg project, respectively,] to be 51 percent for Indonesia and 49 percent for FCX," Inalum head of corporate communication Rendi A. Witular said on Tuesday.

Energy and Mineral Resources Minister Ignasius Jonan said on Jan. 25 that Rio Tintos 40 percent interest would be converted into shares through a rights issue, resulting in the dilution of the stakes currently held by Inalum and Indocopper to around 5.5 percent each. Consequently, after the conversion of Rio Tintos interest into shares and the acquisition of Indocopper, Indonesia would control a 51 percent share in PTFI, Jonan said.

Earlier this month, PTFI executive vice president Tony Wenas acknowledged that Rio Tintos 40 percent interest could be converted into 40 percent shares in PTFI with the approval of its parent company, FCX. He also said there would be no problem in securing the deal in the near future even though Rio Tintos agreement with PTFI was supposed to become effective in 2022.

"Technically, we can arrange it so that we will be able to directly convert [Rio Tintos] interest into PTFIs shares," Tony said on March 7.

Inalum has hired Indonesias state-owned investment firm PT Danareksa and two American consultancy firms - Morgan Stanley and PricewaterhouseCoopers (PwC) - to calculate the value of Rio Tintos interest. The process has reportedly been complete, although the figure has not been publicly disclosed.

Germanys top lender, Deutsche Bank, said in a report published on Feb. 13 that an exit from Grasberg for above US$3.3 billion, with an implied discount rate of around 14 percent, would be a reasonable outcome for Rio Tinto.

The miner, which had operating assets totaling $1.14 billion for Grasberg as of last year, is projected to see its copper production more than double to 1.05 million tons per year in the 2023-2027 period from only 478,000 tons last year, according to thelender.

By the mid-2020s, as Gras-bergs underground mine ramps up, the huge mining site is expected to make up about 8 percent of Rio Tintos total earnings before interest, taxes, depreciation and amortization (EBITDA), in accordance with its 40 percent interest in the project.

However, Deutsche Bank also said considering Indonesias current mining rules, which demand government control of all mining assets, the best-case scenario for Rio Tinto would be to see its ownership in Grasberg dwindle to 20 percent from 40 percent at present.